Do audit committees manage legitimacy through increased voluntary reporting? Evidence from a large-scale textual analysis of audit committee reports

50 Pages Posted: 16 Feb 2018 Last revised: 17 Aug 2021

See all articles by Michelle Draeger

Michelle Draeger

Colorado State University, Fort Collins - Department of Accounting

Bradley Lawson

Oklahoma State University - Stillwater - School of Accounting

Jaime J. Schmidt

University of Texas at Austin

Date Written: August 16, 2021

Abstract

This study investigates whether audit committees manage legitimacy by voluntarily disclosing their financial reporting and audit oversight activities in the audit committee report. The answer is important because, if true, it would suggest that a regulatory mandate to require expanded audit committee reports may not be necessary. Performing a large-scale textual analysis of over 24,000 U.S. companies’ audit committee report disclosures issued between 2006 and 2017, we find that audit committees of large accelerated filers (LAFs) voluntarily increase disclosure of their financial reporting and audit oversight activities following (1) the SEC’s 2015 Concept Release which encouraged greater audit committee disclosure and (2) a company’s announced need to restate its financial statements. However, we do not find a similar increase following either event for non-large accelerated filers. Our findings indicate that large companies respond to external demand for additional audit committee disclosure but that a regulatory mandate may improve small company audit committee reporting.

Keywords: audit committee reports, voluntary disclosure, textual analysis, LIWC

JEL Classification: M41, M48

Suggested Citation

Draeger, Michelle and Lawson, Bradley and Schmidt, Jaime J., Do audit committees manage legitimacy through increased voluntary reporting? Evidence from a large-scale textual analysis of audit committee reports (August 16, 2021). Available at SSRN: https://ssrn.com/abstract=3118408 or http://dx.doi.org/10.2139/ssrn.3118408

Michelle Draeger

Colorado State University, Fort Collins - Department of Accounting ( email )

256 Rockwell Hall
Fort Collins, CO 80523
United States

Bradley Lawson

Oklahoma State University - Stillwater - School of Accounting ( email )

College of Business Administration
415 Business Building
Stillwater, OK 74078
United States

Jaime J. Schmidt (Contact Author)

University of Texas at Austin ( email )

Austin, TX 78712
United States

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